Posts tagged ‘venezuela’

The industry pledges further reform as more accusations hit the Kimberley Process

by Greg Klein

Confidence in the Kimberley Process took another blow with allegations that it’s being used to certify conflict diamonds from Brazil. Environmental degradation and corrupt practices of illegal miners and traders threaten indigenous tribes with “cultural genocide,” journalists Fellipe Abreu and Luiz Felipe Silva wrote in Folha de S.Paulo late last month. An English translation appeared on InsightCrime.org on October 14, two weeks after Amnesty International released a report alleging KP failings in the Central African Republic.

If anything, Brazil’s ban on outsiders mining native lands merely demonstrated the persistence of illegal miners. Having been expelled previously, diamond hunters poured back into the territory of the Cinta-Larga people in the country’s northwest. The rush peaked at over 5,000 miners in 2004, then subsided after natives killed about 29 intruders, Abreu and Silva write. “Since then, mining operations in the area have been closed and re-opened several times.”

The reporters quote state prosecutor Reginaldo Trindade, who calls the current situation worse than 2004. “In March of this year, there were no less than 500 armed miners who told the Cinta-Larga that they would not leave the indigenous land.” Although natives managed to halt mining in May, “in July the area was retaken by armed miners,” according to Abreu and Silva.

The miners are garimpeiros, mostly working small alluvial operations. Some bring families with them, others bring drugs, guns and prostitutes. Investors supply equipment, bribe state officials and sell the contraband stones, the reporters say.

Collaborating with the illegal industry are Cinta-Larga leaders, the article adds. As for other natives, illegal mining and the sharp practices of those who control it introduce “a systematic process of acculturation. At first grudgingly, the indigenous permitted the mines with conditions, but the large sums of money and their growing consumer habits led to corruption and generated insurmountable debts for the indigenous communities.”

The reporters quote Trindade saying, “The Cinta-Larga people are on the brink of genocide, if not physically, then at least ethnically and culturally.”

Abreu and Silva say the illicit stones can be advertised online, then sold to buyers who sneak into the country on a light plane. Or the diamonds can be smuggled into Venezuela or Guyana. “The advantage in Guyana is that one can get the Kimberley seal—stones that enter a certified legal zone are registered as if they were extracted from there.” Another route to KP certification is to mix the diamonds with those from legitimate mines within Brazil, the reporters allege.

“We have always believed powerful people are involved in the mining,” Trindade tells the journalists. “There are many reports about the involvement of officials from different agencies, politicians, businessmen and even multinationals in [diamond] exploration.”

Obviously there’s money to be made in a country still reeling from the Petrobras scandal, even if few Cinta-Larga benefit. Following the Portuguese conquest, Brazil was the world’s leading supplier of diamonds until the great South African discoveries of the mid-19th century. Abreu and Silva cite highly speculative numbers that claim the native lands might still hold the world’s richest diamond resources.

But if the journalists are accurate about the stones’ journey to market, the article provides another indictment of the Kimberley Process after Amnesty International argued that states and companies use KP “as a fig leaf to reassure consumers that their diamonds are ethically sourced.”

The World Diamond Council is the first to agree that there is more work to be done when it comes to managing the global diamond supply chain. While the vast majority of diamonds contribute a significant benefit to the countries in which they’re produced, as an industry we are committed to staying the course until we reach the goal of zero conflict diamonds.

Amnesty’s claims drew strong criticism, however, with the Antwerp World Diamond Centre challenging the group’s accuracy. The centre said its expert staff conduct thorough checks on all diamonds moving in and out of Belgium. As a result, the AWDC seized two shipments last year from the Central African Republic, focus of the Amnesty report. The companies involved later lost their right to trade in Antwerp, the world diamond capital.

World Diamond Council president Edward Asscher credited KP with removing more than 99% of the world’s conflict diamonds from the market, Bloomberg reported. But in a formal statement the WDC stated it’s “the first to agree that there is more work to be done when it comes to managing the global diamond supply chain. While the vast majority of diamonds contribute a significant benefit to the countries in which they’re produced, as an industry we are committed to staying the course until we reach the goal of zero conflict diamonds.”

The council said it welcomed Amnesty’s recommendations. Among them is a call to broaden the definition of conflict stones, which KP limits to “rough diamonds used by rebel movements to finance wars against legitimate governments.” Diamond Development Initiative executive director Dorothée Gizenga told Rapaport Magazine that Russia and some Asian countries resist broadening the KP’s mandate. “There are those that don’t even want to hear about human rights,” she said.

Next March representatives of the industry supply chain from miners to retailers will take part in a forum on sustainability and responsible sourcing at the three-day Jewelry Industry Summit in New York.

An international tribunal has awarded Gold Reserve TSXV:GRZ $740.3 million for the seizure of its Brisas gold-copper project in Venezuela. While company president Doug Belanger expressed hope the country will pay up promptly, his September 22 statement warned, “Should they fail to do so, we are prepared to pursue all available means to ensure that the amount awarded to the company is recovered in full.”

The World Bank’s International Center for Settlement of Investment Disputes evaluated the project’s market value at $713 million and awarded an additional $22.3 million interest and $5 million for the company’s legal and technical expenses. Payment comes due immediately “with any unpaid amounts accruing interest at Libor plus 2% per annum,” Gold Reserve stated.

The three-person panel, with representatives from Italy, France and New Zealand, based its decision on the Canada-Venezuela Bilateral Investment Treaty.

The company had spent about US$300 million on the project before the government revoked permission to build a mine. However Gold Reserve stated the award “is less than the value of the Brisas project at today’s gold and copper prices and Venezuela will substantially benefit from the development of the mine.” The company describes Brisas as “one of the largest undeveloped gold-copper deposits in the world, [with] reserves of 10.2 million ounces of gold and 1.4 billion pounds of copper.”

In a revised claim submitted in July 2011, Gold Reserve priced the Brisas and early-stage Choco 5 projects at about $2.1 billion.

Venezuela confiscated the project in a series of actions during 2008 and 2009, part of a wave of expropriations of mining, oil and gas, and other assets under now-deceased president Hugo Chavez. In 2012 he pulled his country out of the arbitration process but dozens of previous cases are still pending. Anglo American went to the World Bank last April after Venezuela cancelled its Loma de Niquel concessions in 2012.

Gold Reserve stated it has already taken steps to ensure collection of the award, “which is immediately enforceable in any of the 150-plus member states party to the New York Convention.” But the company also offered an olive branch of potentially mutual benefit. Venezuela’s acquisition of Gold Reserve’s engineering work “would both expedite and reduce the cost of the project’s development,” the company added. “If requested, Gold Reserve would also be prepared to assist in the fast-track development of the Brisas project.”

The company, which had a press time market cap of $330.17 million and about $8.8 million in cash, said it would distribute “a substantial majority of any proceeds” to its shareholders.

At one point Venezuelan media had reported the country would develop Brisas, and Las Cristinas, then held by Vannessa Ventures, in a joint venture with Rusoro Mining TSXV:RML, which attempted a hostile takeover of Gold Reserve in 2008 and 2009. But in March 2013 Rusoro launched its own US$3.03-billion expropriation claim against Venezuela.

Two other Canadian jurisdictions—New Brunswick (7), and Newfoundland and Labrador (9)—ranked in the top 10 worldwide, followed by Saskatchewan (12), Yukon (19), Quebec (21), Manitoba (26), Ontario (28), Nova Scotia (29), British Columbia (32), Nunavut (44) and the Northwest Territories (47).

Quebec, once the darling of mining investors, continued to fall down the rabbit hole. From 2007 to 2009, the French-speaking district topped the survey, then dropped to fifth in 2011, 11th in 2012 and finally 21st worldwide in 2013, due in part to amendments to Quebec’s mining act and recent tax policy changes.

B.C. dropped to 32nd from 31st in 2012, though the survey recorded improved perceptions regarding the western province’s political stability and availability of labour and skills.

The Canadian public policy think tank also identified the 10 places mining enthusiasts should avoid. From the bottom, they are Kyrgyzstan, Venezuela, Philippines, Argentina (La Rioja and Mendoza), Angola, Zimbabwe, Ivory Coast, Indonesia and Madagascar.

A mining and exploration retrospect for March 9 to 15, 2013

“When the Libor scandal broke, my first reaction at the time was, ‘Wait ‘til they look at gold.’” Dow Jones Newswires reporter and Wall Street Journal contributor Tatyana Shumsky discussed “the fix” in a Thursday WSJ Live interview after breaking the news that the U.S. Commodity Futures Trading Commission was looking into the way gold prices are set.

“At the start of each gold price-fixing, the chairman announces an opening price to the other four members who relay that to their customers and, based on orders received from them, instruct their representatives to declare themselves as buyers or sellers at that price. The gold price is adjusted up and down until demand and supply is matched at which point the price is declared “fixed.” The fixings are used to determine spot prices for the billions of dollars of the two precious metals traded each day. Buyers and sellers can get insight on price changes and the level of interest during the fixing process. They can cancel, increase or decrease their interest based on that information.”

According to Ross Norman, owner of bullion broker Sharps Pixley, “The fix is open, consequential, transparent and has stood the test of time,” he told Reuters. “It’s not open to manipulation in the same way as Libor.” But Shumsky told WSJ Live, “To even deal with these banks, you have to have 20, 50 million dollars in gold alone.”

CFTC head Scott O’Malia downplayed his office’s interest. “I think we’ve had a couple of conversations. We’re looking at energy, indexes, prices, how they’re set,” Reuters quoted him. “We’ll look at all of the range of index-setting.”

Shumsky acknowledged, “It is very early days right now. But it is interesting that they’re looking at it because a lot of commodities markets are opaque like this. You have coal, iron ore, platinum….” And silver, the interviewer added.

GATA on CNBC

Chris Powell, on the other hand, said he’s “always suspicious” of the CFTC. “This is not an investigation,” the Gold Anti-Trust Action Committee secretary/treasurer said in a Thursday CNBC interview. “They’ve been investigating silver for four and a half years and have not issued any report…. The attorney general of the United States said before the Senate judiciary committee a few days ago that the big banks and investment houses in the United States are not only too big to fail, they’re too big to jail.”

An interviewer asked, “What needs to be done to make the market more transparent, less susceptible to manipulation? Do we need to scrap the gold fix?”

“No, I think we need to commit journalism,” Powell responded. “You simply have to ask the central banks very specific questions about gold, as GATA has done over the years … what are you doing in the gold market today? Show us your gold books, your gold swaps, your gold leases. What is the purpose of your trading secretly in the gold market?”

While Eastern central banks keep buying gold, their Western counterparts swap, lease and sell the stuff to protect their currencies, he maintained. “None of us alive today has ever seen a free gold price.”

CNBC buried the video within a story that quotes Jeffery Christian of the commodities research firm CPM Group, who said he thinks GATA are “outright liars … pretty much what they do is nonsense.”

Who’ll get Venezuela’s gold?

As for gold repatriation, it might prove tumultuous to Venezuela. A Wednesday Reuters commentary by Peter Christian Hall said the 160 tons President Hugo Chavez brought home in 2011 would be worth about $9 billion today. But during the first eight months of 2012 about $550 million was sold. “Did further sales follow over the past six months, with proceeds partly paying for the public largesse that helped fuel Chavez’s victorious up-from-the-sickbed presidential run?” Hall asked.

A mining and exploration retrospect for March 2 to 8, 2013

“I didn’t ‘out’ anyone in the book and it wasn’t my intention to do that,” said Timmins journalist Kevin Vincent. “If I outed one prominent businessperson, I would have to out everyone in Timmins.” Discussing his book Bootleg Gold in Tuesday’s Northern Ontario Business, Vincent recounted what was once the mining town’s second-largest industry.

“A large percentage of the prominent business community has its roots tied to the gold-smuggling industry,” he told the paper. “In the 1920s, ’30s and ’40s, there was so much gold here every business had to have a set of scales under the counter. If you didn’t, you weren’t in business.”

Highgrading, as it was called, started with miners stealing small amounts, which they sold on a well-organized black market for 50%. “Shift bosses, mine captains and even mine managers were also involved,” Northern Ontario Business stated.

“When the gold was all put together, it was really compiled by just a handful of individuals and they controlled everything,” the paper quoted Vincent. “If you tried to move significant amounts of gold outside of their operation you ran a real, serious risk. Everyone knew it was going on and there were rules of engagement you had to follow.”

The endeavour was pervasive, with spinoff opportunities for seemingly everyone. One way of sneaking loot out of the mine was “inside false teeth constructed by local dentists,” the paper reported.

Due diligence defends against dirty deeds

March has been proclaimed Fraud Prevention Month by Canada’s 13 securities commissions. The regulators have a number of public awareness programs underway, including a provincial tour by the Ontario Securities Commission which highlights the agency’s new Office of the Investor, “the voice of the investor internally at the OSC.” On Tuesday some agencies, including Quebec’s l’Autorité des marchés financiers, cautioned would-be investors to check the registration (here and here) “of any firm or individual selling securities or offering investment advice.”

The following day the British Columbia Securities Commission announced two new features to its Investright program—a guide to private placements for retail investors and a mobile app providing investment advice and up-to-the-minute scam alerts. Like its Ontario counterpart, the BCSC has its own roadshow, this one exposing the province’s top 10 scams.

A Fraser Institute survey shows how miners and explorers see the world they work in

“Great mineral assets, highly corrupt government….” That’s sometimes the conundrum under which exploration and mining companies operate. And that was just one comment published by the Fraser Institute as it evaluated a world of challenges and opportunities in its annual Survey of Mining Companies released on February 28.

Between October 2012 and January 2013, 742 companies rated 96 jurisdictions which included countries and, in the case of Canada, Australia, the U.S. and Argentina, provinces, states and territories. Respondents considered 15 policy factors affecting investment decisions in those jurisdictions, for a possible maximum score of 100. Some factors included regulations, corruption, taxation, aboriginal land claims, infrastructure, the local workforce, political stability and physical security.

While the full report provides breakdowns by category, here are the top 10 jurisdictions for overall scores. The 2011-to-2012 rankings are in parentheses.

The Fraser Institute’s annual survey rates jurisdictional risk for a number of factors concerning mining and exploration.

Utah and Norway knocked Saskatchewan and Quebec out of the top 10. Greece was added to the survey for the first time, only to join Zimbabwe and the Democratic Republic of the Congo for their bottom 10 debut. Another first-timer, French Guiana placed 27th overall, a fairly impressive ranking for a newcomer and non-First-World country.

Crisis-torn South Africa dropped to 64th place overall compared to 54th last year, retaining its fourth-from-last spot for “labour regulations, employment agreements and labour militancy or work disruptions.”

Of Canadian jurisdictions, Nunavut ranked worst at number 37.

Some anonymous concerns listed under “horror stories” ranged from uncertainty about native rights in Ontario to potential corruption in Quebec. One response stated that “endless ‘community consultation’” in the Northwest Territories costs the company more than exploration. Others noted confiscation of mining rights in Indonesia and expropriation in Bolivia.

A mining and exploration retrospect for January 12 to 18, 2013

By press time Friday, little was known about the five people abducted earlier in the day from Braeval Mining’s TSX:BVL Snow Mine gold project in northern Colombia. The three employees and two consultants included a Canadian, two Colombians and two Peruvians. The Peruvian consulate identified two victims as Javier Leandro Ochoa and Jose Antonio Mamani. The other names haven’t been released.

Military sources say the victims were abducted in a rural area of Norosi municipality, in Bolivar department.

The hostages were taken by members of the National Liberation Army (ELN) in a region described as a traditional ELN stronghold, the Globe and Mail reported. With an estimated 1,500 members, the ELN is much smaller than the Revolutionary Armed Forces of Colombia (FARC), news reports stated.

Although FARC holds peace negotiations with the government, “the ELN has been seeking peace talks … without success. Unlike the FARC, it has not renounced ransom kidnappings,” according to the G&M.

“Miners in Colombia have traditionally paid tributes, or ‘war taxes,’ to rebels and other illegal armed groups,” the paper added.

Geologist gets jail

A Vancouver court handed former mining executive John Gregory Paterson a six-year prison sentence for his faked assay scam, the CBC reported on Friday. Paterson pleaded guilty last September to four counts of fraud.

As CEO of Southwestern Resources and a qualified person, Paterson signed off on 433 assays that he invented between 2003 and 2007. His make-belief numbers were used in a 2005 PEA for the Boka Gold Project in China.

According to the CBC, Paterson’s lawyers told a sentencing hearing that “he suffers from severe depression and argued he didn’t carry out the fraud to line his pockets. Instead, Paterson was motivated by wishful thinking and a crippling fear of failure.”

But the Crown prosecutor told court how investors suddenly lost their savings. “Really, the floor fell out from underneath them,” the CBC quoted him. “It was an absolute shock and a terrible loss.”

A possible overhaul of British Columbia’s claim-staking process could give natives more power to block early-stage exploration on Crown land. A Monday Vancouver Sun article discussed implications of a December decision by the Yukon Court of Appeal, which ruled that the territorial government must consult and “accommodate” the Ross River Dena Council before awarding mineral claims within the Ross River area.

So far the ruling concerns a region surrounding one native band. But it might have wider repercussions within the Yukon and B.C. As the Sun pointed out, the three judges behind the decision also sit on the B.C. Court of Appeal, “meaning they could rule similarly in any separate B.C. case.”

Mining Association of B.C. spokesperson Zoe Younger told the Sun that B.C., unlike the Yukon, doesn’t automatically approve exploration once a claim has been staked. Different circumstances “have different trigger points and thresholds,” she said.

Nevertheless the Sun stated that Andrew Gage, a lawyer with West Coast Environmental Law, “called the Yukon decision ‘hugely significant’ and urged the B.C. government to take notice or face the prospect of more litigation with the same results in this province.”

In a statement issued Monday, the Association for Mineral Exploration B.C. said, “We are encouraging the Yukon government, First Nations and Yukon Chamber of Mines to work together to resolve this issue in a practical way that brings certainty to everyone. AME BC is supporting YCM and following this important file closely. The government of Yukon has been given 60 days to determine if it will appeal the decision to the Supreme Court of Canada.”

A mining and exploration retrospect for December 22, 2012, to January 4, 2013

To accommodate the Christmas/New Year publishing schedule, this review covers two weeks.

From risk to risk

“Although some companies and the province laud Ontario as being one of the best mining-friendly jurisdictions in the world,” that reputation is changing, according to a Thunder Bay-based drilling contractor. In the January 2 edition of Northern Ontario Business, Barb Courte, president of Cobra Drilling and North Star Drilling, said the province is facing a downturn in early-stage exploration.

The article stated, “In conversation with her industry colleagues, Ontario is considered a ‘risk area’ for investment, based on some high-profile First Nations-industry conflicts, along with the uncertainty of how the new Mining Act plans and permits regulations will play out.”

Courte told Northern Ontario Business her companies did well in 2012 but business has now dropped by about 50%.

A supplier dates the drilling downturn to last April. Hugh Paxton, GM of Wire Rope Industries Distribution, told the paper, “It’s the lowest numbers we’ve seen for drilling supplies since we’ve been [in] it for the last four years.”

Courte, meanwhile, hopes to make up for lost business in the Caribbean. Unigold TSXV:UGD has contracted her to send four drills to the Dominican Republic in autumn and she’s getting inquiries from other companies operating in the country, the story stated.

Unigold calls the country a “premier mining destination.” The company’s most recent (November 28) news release stated the government “supports development and exploration in the mining sector. In addition, the country has well-established mining laws and environmental laws.”

Two days later, however, Mining Weekly offered a different perspective. A spokesperson for the Xstrata Nickel subsidiary Falcondo told the publication, “Security in the country has seen a gradual deterioration, which has forced us to significantly increase our security costs. They have tripled in the past few years.”

Mining Weekly added, “Dominican President Danilo Medina has acknowledged the problems and promised in a televised speech to the nation on [November 27] to improve security and reform the country’s police force. According to the World Economic Forum’s latest Global Competitiveness Index released in October, the Dominican Republic ranked 143rd out of 144 countries worldwide in reliability of its police force.”

New mega-company consolidating China’s rare earths production

A planned 12-company takeover could mark the first step in creating “a massive rare earth enterprise that will integrate light rare earth resources” in northern China. According to a December 28 China Daily article, newly signed framework agreements would have the companies and their shareholders hand over a combined 51% interest for free to the Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co (REHT). In return, REHT would provide management, technology and funding, while setting production and export quotas. The agreement allows one year for the deals to be consummated.

“If the first step goes well, REHT will eventually team up with major rare earth producers in Gansu, Sichuan and Shandong provinces to form the China North Rare Earth Hi-Tech Co,” China Daily reported. “Authorities expect bigger enterprises to churn out products with higher added value and shoulder more responsibility in environmental protection.”

With just 23% of the world’s rare earths reserves, China supplies over 90% of global demand, the paper added.

Can placer miners meet B.C.’s environmental code?

An enduring legacy of the Fraser and Cariboo gold rushes, placer mining remains a British Columbian institution. But now that a forgotten 2011 environmental report has come to light, the miners are worried.

An audit from B.C.’s Ministry of the Environment found 74% of 23 placer operations inspected in 2010 didn’t comply with land restoration requirements and 43% of miners “were also working in streams without authorization,” the Vancouver Sun reported on December 26.

“The placer mines range from one-person operations to larger operations that employ dozens of people and use heavy equipment to extract gold from sand and gravel,” said the story.

A mining and exploration retrospect for 2012

One of the commodities that excited the 2012 market, graphite began stirring interest in 2011 and really gained momentum early this year. But the precipitous fall, right around April Fool’s Day, let cynics bask in schadenfreude. It was a bubble all along, they insisted.

Well, not quite. Despite reduced share values, work continued as the front-runners advanced their projects and earlier-stage companies competed for position in graphite’s second wave of potential producers. By autumn some of the advanced-stage outfits, far from humbled by last spring’s events, boldly indulged themselves in a blatant bragging contest.

Old king coal to regain its throne

If clean carbon doesn’t excite investors like it used to, plain old dirty carbon might. By 2017 coal’s share of the global energy market will rival that of oil. So says the International Energy Agency, which issued its Medium-Term Coal Market Report in December.

The forecast sees China consuming over half the world’s production by 2017. “Even if Chinese GDP growth were to slow to a 4.6% average over the period, coal demand would still increase both globally and in China,” the report stated. India, with the world’s “largest pocket of energy poverty,” will take second place for consumption.

Coal’s growth in demand is slowing, however. But its share of the energy mix continues to increase even though Europe’s “coal renaissance” (sic) appears to be temporary.

Bringing coal miners to new hassle

Chinese provide much of the market and often the investment. So why shouldn’t they provide the workers too? That seems to be the rationale of Chinese interests behind four British Columbia coal projects.

The proponents plan to use Chinese underground workers exclusively at the most advanced project, HD Mining International’s Murray River, for 30 months of construction and two additional years of mining. Only then would Canadians be initiated into the mysteries of Chinese longwall mining. But with only 10% of the workforce to be replaced by Canadians each year, Chinese “temporary” workers would staff the mine until about 2026. The B.C. government has known about these intentions since at least 2007.

The HD Mining saga has seen new developments almost every week since the United Steelworkers broke the story on October 9.

Resource imperialism aside, resource nationalism and other aspects of country risk continued throughout 2012. South American Silver TSX:SAC continues to seek compensation after spending over $16 million on a silver-polymetallic project that the Bolivian government then snatched as a freebie. Centerra Gold TSX:CG escaped nationalization in Kyrgyzstan but works its way through somewhat Byzantine political and regulatory intrigue, as does Stans Energy TSXV:HRE. In November the latter claimed a court victory over a hostile parliamentary committee.